The property market has been a wild place in recent years, having been a place many have seen great prosperity. In this Masco Insight, our Managing Director Abdul Majid examines a recent HITA report which suggests the boom may be headed to an end by mid-2022.
Last week saw the result of a major report that is hotly anticipated in our industry: the Housing Industry Association (HIA).
The analysis presented in the report is nothing if not interesting, and should at least make the sector — and the government — sit up and take notice.
We’ve previously written about our great optimism that Australia had weathered the worst of COVID-19. I feel somewhat forlorn that that Insight – written with so much hope – now seems like a distant memory as we battle to overcome the current wave of COVID-19.
The report’s predictions and projections make for sombre reading. It predicts that the current construction boom will likely end by mid-next year, with the almost 33% uptick in building projects since 2019 being unsustainable.
Many players in the industry have warned that the current rate of activity masked the actual shortages that were destroying potential profits.
The report casts doubt on the future beyond Australia’s current and much vaunted construction boom, suggesting the sector could fall off a cliff by mid-2022.
The HIA raised concerns that two years of limited population growth will heavily impact the industry, even if borders reopen. It argues that homes were taking twice as long to build during the pandemic with experts suggesting the sector will face a hangover as the record level of construction declines.
While lockdowns have presented their own challenges, they are not a major factor behind delays.
Instead, rising costs and timeframes due to labour and material shortages have been key underlying causes.
In this regard, the government’s HomeBuilder program, which handed out $25,000 grants for building and renovation projects, has driven much of this demand.
The HIA’s figures show this has resulted in a massive extension in the time it currently takes to build a home; from a seven to nine-month period, to 12 months or beyond.
This has also powered the build of far more dwellings in 2021 (135,390), some 32.5% more than in 2019.
The HIA report boldly argues that “the home building sector has pulled the economy out of the recession,” but it is unlikely that this will be sustainable for much longer.
The HIA found that the commencement of new construction was forecast to fall to 125,030 over the next financial year, when the industry will start to be hit with the effects of two years without strong population growth, higher building costs and the end of HomeBuilder.
We’re then likely to see home building drop to below decade-long averages, to 97,850 in 2023 and a low of 93,770 the year after.
It follows similar warnings from the Association of Professional Builders, said in early August that despite an oversupply of work, the soaring cost of materials and delays due to lockdowns mean many in the sector weren’t making profits.
The Association estimated at the time that as many as 60% of operators were losing money.
The Association said a softening in the market would come from new contracts drying up as the year went on, leaving the industry “potentially in a terrible state”.
All of this makes for sober analysis for those in the construction industry. Companies like ours are looking carefully at our portfolios, ensuring that we are selective in the work we take on, and that cash flow remains forefront of forecasting and analysis.
From a government policy perspective, this should reinforce the need to think very long and hard about the impacts of sustained lockdowns. The government is – to be sure – in an immensely difficult position with clear answers not apparent. I envy the challenging role governments have to play in this crisis. But the impact of sustained lack of migration and the impact of lockdowns on society will be devastating in the long run.
And no sector perhaps evinces this better than one which – as the HIA has argued – pulled us out of recession.